Schulze’s View On The Challenges Ahead

While having the opportunity to sit down and talk with Best Buy’s chairman and founder Dick Schulze about his friend and colleague Brad Anderson, TWICE also had the chance to get his thoughts on current industry conditions and what may happen in the near future.

How will this recession change the nature of the CE industry? How will it change Best Buy?

For openers, this recession is affecting more people than recessions in any I’ve experienced in the past. First, this is one where the upper-middle- and higher-income consumers have been disproportionately affected. Those consumers who would normally be lured to buy brands with more features and technology, with special handling, we are finding that those [higher income] are on the sidelines equally with those middle class and main stream consumers. Unilaterally the entire population has been affected.

The effect on our industry is that people are not willing to pay for small increments of added performance. We closed some Magnolia freestanding stores, and that shows that high-performance products are under pressure. Manufacturers are scrambling to differentiate products from so many others in LCD, flat panel, telephony and information and software technology. You saw what happened to Pioneer in plasma.

When do you think the recession will end? How is Best Buy adapting with the changing environment?

More than likely [the recession] will bottom out late this year and early next year. By the fall of 2010, when people will again be able to get credit and buy homes, they will be able to take advantage of the innovation and opportunities this industry provides. That should be when business will really begin to move forward.

During the next two years we have to continue to differentiate ourselves from discount chains and the Internet. As products fall to commodity prices, selling at low price points is not enough. We have to continue to provide more on the floor support, with a friendly and connected environment, where our Internet efforts will be an advantage and we can take leverage of services such as Geek Squad.

We feel that Brad has extended those efforts [as CEO] and that Brian [Dunn] is from that same piece of cloth. He has worked 24 years with us, worked his way up the ladder, and believes strongly in the power of our people.

How will industry players try to differentiate themselves in this environment?

It is tough to differentiate but we are now required to think about these products within a connected environment — whether it is in the home, in the car, or on the move. Consumers want the same access to data, communication and entertainment with the same capabilities wherever they are. [Best Buy] will leverage our investment in Geek Squad and do the heavy lifting ... that is another tie-breaker for us.